Financial Dictionary

AABA transit number -- A unique identifying number assigned by the American Bankers Association (ABA) under the national numerical system to facilitate the sorting and processing of checks. It has two parts, separated by a hyphen. The first part identifies the city, state, or territory in which the bank is located; the second part identifies the bank itself. The transit number appears in the upper right--hand corner of checks as the numerator (upper portion) of a fraction.

Account -- A relationship involving a credit established under a particular name, usually by deposit or loan.

Account analysis -- The process of determining the profit or loss to the bank in handling a commercial account for a given period of time. An account analysis report shows the activity involved, the cost of that activity (determined by multiplying unit costs by transaction volume), and the estimated earnings on average investable balances maintained during the period after all expenses have been listed

Account reconcilement -- A bookkeeping service offered to commercial clients who use a large volume of checks. The service is designed to assist them in balancing their accounts. It may include numerically sorting checks, itemizing outstanding checks, and actually balancing the account.

Accounting -- The process of organizing, recording, and reporting all transactions that represent the financial condition and performance of a business, organization, or individual.

Accounts payable -- Amounts that are due to vendors or suppliers.

Accounts receivable -- Short-term assets representing amounts due from a vendor or supplier of goods or services that were sold on credit terms.

Accrualaccounting -- The accounting method of recording all income when it is earned and all expenses when they are incurred.

Activitycharge -- A service charge imposed on checking accounts of customers who do not maintain balances sufficient to compensate the bank for the expenses incurred in handling the account.

Adjustablerate -- See variable rate.

Administrator -- A party appointed by the court to settle an estate when (1) the decedent has left no valid will, (2) no executor is named in the will, or (3) the named executor cannot or will not serve.

Affidavit -- A voluntary sworn statement of facts signed before a notary public, court officer, or other authority.

Alteredcheck -- A check on which a material change, such as the dollar amount, has been made. Banks are expected to detect alterations and are responsible for paying checks only as originally drawn.

AmericanBankersAssociation(ABA) -- An organization of commercial banks, founded in 1875 to keep members aware of developments affecting the industry, develop educated and competent bank personnel, and seek improvements in bank management and service.

American Institute of Banking (AIB) -- A section of the American Bankers Association (ABA) founded in 1900 to provide bank-oriented education for bank employees. AIB's activities are conducted through chapters and study groups throughout the country. In addition to its regular classes, the institute conducts correspondence courses. Membership and enrollment are open to employees and officers of ABA member institutions.

AML -- Anti-Money Laundering

Amortization -- The gradual reduction of a loan or other obligation by periodic payments of principal and interest.

Annual cap -- The maximum amount by which the interest rate on an adjustable rate mortgage may be raised in a single year.Annual percentage rate (APR) -- The true cost of credit on a yearly basis. Expressed as a percentage, the APR results from an equation that considers the amount financed, the finance charge, and the terms of the loan. The APR is usually expressed in terms of the effective annual simple interest

Annual percentage yield (APY) -- A percentage rate reflecting the total amount of interest paid on a deposit account, based on the interest rate and the frequency of compounding for a 365-day period.

Asset -- Anything owned that has commercial or exchange value. Assets may consist of specific property or of claims against others, versus obligations due to others (liabilities).

ATM access card -- The plastic card used by a cardholder to activate an automatic teller machine for deposits, cash withdrawals, account transfers, balance inquires, or other related functions.

Auditor -- In banking, an individual, usually appointed by the bank's directors and reporting to them, who is responsible for examining any and all phases of the bank's operations.

Automated clearing house (ACH) -- A computerized facility that electronically processes inter--bank credits and debits among member financial institutions, avoiding the use of paper documents.

BBalance -- The amount of funds in a customer's account. This term may refer to the book (ledger) balance, which simply shows the balance after debits and credits have been posted; the collected balance, which is the book balance less float; or the available balance.

Bank draft -- A check drawn by a bank on its account with another bank.

Bank holding company (BHC) -- A corporation that owns, controls, or otherwise has the power over the voting stock in one or more banks. All bank holding companies come under the jurisdiction of the Federal Reserve.

Bank Secrecy Act(BSA) -- Federal legislation that requires banks to report cash transactions that exceed $ 10,000 in any single day and requires that the bank maintain certain records (copies of checks paid, deposits, and so forth). The act is intended to inhibit laundering of funds obtained through illegal activities.

Basis point -- The movement of interest rates or yields, expressed in hundredths of 1 percent.

Beneficiary -- The party who is to receive the proceeds of a trust, insurance policy, letter of credit, or other transaction.

Bond -- A long-term debt instrument. The issuer (a corporation, unit of government, or other legal entity) promises to repay the stated principal on a specified date at a specific rate of interest.

BSA -- see Bank Secrecy Act

Business loans -- Loans to businesses, repaid through sale of a company's goods or services.

CCash management -- A family of bank services designed to speed up collection of receivables, control payments, reconcile accounts, provide information, and efficiently manage funds

Cashier's check -- A check drawn by a bank on itself. Since the drawer and drawee are one in the same, acceptance is considered automatic and such instruments have been legally held to be promises to pay.

Certificate of deposit (CD) -- A formal receipt issued by a bank for an amount of money, left with the bank for a certain amount of specified time (seven days or more). CDs usually bear interest, in which case they are payable at maturity or after a specified minimum notice of intent to withdraw. CDs may also be non-interest bearing.

Certified check -- A depositor's check that has been stamped with the word "certified," with a signature and date. By certifying a check, the drawee guarantees that sufficient funds have been set aside from the depositor's account to pay the item. A certified check is a promise to pay and therefore is an obligation of the drawee.

Charge--off -- A loan, obligation, or cardholder account that the bank no longer expects to collect and writes off as bad debt.

Check -- A demand draft drawn on a bank or other financial institution ordering the bank to pay the amount to the person presenting the check.

Check clearing service -- Service offered to financial institutions by Federal Reserve Banks and commercial banks to clear or present checks to the paying bank.

Check routing symbol -- The denominator (lower portion) of a fraction, appearing in the upper right-hand corner of checks drawn on Federal Reserve member banks. The ABA transit number is the upper portion of this fraction. The check routing symbol identifies the Federal Reserve district in which the drawee is located, the Fed facility through which the check can be collected, and the availability assigned to the check under the Fed schedule.

Check truncation -- Any one of several systems designed to reduce the physical workload of processing paper checks. In one approach the information on a check is converted into electronic impulses.

Clearing -- The process or method by which checks and/or other point-of-sale transactions are moved, physically or electronically, from the point of origin to a bank or other financial institution that maintains the customer's account.

Combined statement -- A bank statement that combines information from a number of accounts. Depending on the software capabilities of the bank, the statement may contain one checking, multiple savings, or multiple time deposits, and loan balance on one statement.

Community Reinvestment Act (CRA) -- A law passed in 1977 that requires banks and other financial institutions to meet the credit needs of their communities, including the low and moderate income sections of those communities. The act also requires banks to submit reports concerning their investments in the areas where they do business. A bank's compliance with the CRA is evaluated whenever the bank files a request for an expansion of business, such as an application for a new branch.

Compliance program -- The policies and procedures that a bank establishes and follows to ensure that it is obeying all applicable federal and state laws and regulations.

Conservatorship -- The bank is court appointed to manage the property of a minor or incompetent person.

Construction loan -- A short-term loan to a builder or developer to finance the costs of construction. The lender generally requires repayment from the proceeds of the borrower's permanent mortgage loan. The lender may make periodic payouts to the borrower as the construction work progresses.

Consumer credit -- The general term for loans extended to individuals and small businesses. Consumer credit is also referred to as installment credit, personal loans, or personal finance.Correspondent bank -- A bank that maintains an account relationship and/or engages in an exchange of services with another bank.

Cost center -- A way to identify each department or office in a bank.

Credit analysis -- A formal evaluation of the financial and economic conditions of a potential borrower, appraising the borrower's ability to repay debt.

Credit card -- A plastic card (or its equivalent) to be used from time to time by the cardholder to obtain money, goods, or services, possibly under a line of credit established by the card issuer. The cardholder is billed periodically for any outstanding balance.

Creditor -- Any party to whom money is owed by another.

Cross purchasing -- The practice of introducing users of one or more services to buy or use additional services.

Currency -- Paper money, as opposed to coin.

Cycle statement system -- A system of dividing bank depositors' accounts into groups whose statements are then mailed at staggered intervals (cycles) during the month, thereby distributing the workload more evenly throughout the period.

DDaylight overdraft -- (1) A shortage in a bank's reserve account at the Federal Reserve during business hours. (2)Any temporary overdraft in an account, resulting from payments made during business hours before incoming funds are actually received. Daylight overdrafts are cleared by the close of business on the same day.

Debit card -- A plastic card enabling the cardholder to purchase goods or services, the cost of which is immediately debited to his or her bank account. Debit cards activate point-of-sale terminals in supermarkets, stores, and gas stations. Together with credit cards, they are commonly referred to as bank cards.

Deed -- A written instrument, executed and delivered according to law, used to transfer title to property.

Demand deposit -- Funds that may be withdrawn from a bank without advance notice. Checking accounts are the most common form of demand deposits.

Deposit -- Any placement of cash, checks, or other drafts with a bank for credit to an account. All deposits are liabilities for a bank, since they must be repaid in some form at some future date.

Deposit slip -- A listing of the items given to a bank for credit to an account. A copy of the deposit slip may be given to the customer as a receipt.

Direct deposit -- The process by which a payer delivers data by electronic means directly to the payee's financial institution for credit to his or her account. The most common example is the federal government program for direct deposit of Social Security payments. Direct deposit systems substitute bookkeeping entries, received electronically, for paper checks.

Draft -- A signed, written order by which one party (the drawer) instructs another (the drawee) to make payment to a third (the payee). In international banking, also called bill of exchange.

Drawee -- The party to whom the drawer issues instructions to make payment. In the case of checks, the drawee is a bank or other financial institution.

EEarnings credit -- An allowance to a commercial client, offsetting part or all of the service charges on an account. The earnings credit is calculated on the basis of the average collected balance in the account during a period and the earnings credit rate in effect at the time.

Electronic funds transfer service (EFTS) -- The use of automated technology to move funds without paper money.

Employee trusts -- Pension and profit sharing trust funds established by employers for the benefit of employees. The trustee, usually a bank, makes payments to the employees during employment, upon retirement, or at death, as designated under the terms of the trust.

Endorsement -- A signature (other than the signature of the maker, drawer, or acceptor) that is ma de on an instrument for the purpose of negotiating the instrument, restricting payment of the instrument, or incurring endorser's liability on the instrument.

Endorser -- Any person who makes an endorsement.

Escrow -- The holding of funds, documents, securities, or other property by an impartial third party for the other two participants in a business transaction. When the transaction is completed, the escrow agent releases the entrusted property.

FFed funds -- Member banks' excess reserves at the Federal Reserve, loaned on a daily basis to other banks. Fed funds are also used to settle fund transfers, with no float, among member banks.

Federal Deposit Insurance Corporation (FDIC) -- The agency of the federal government established in 1933 to provide insurance protection, up to statutory limits, for depositors at FDIC member institutions. All national banks and all Fed member banks must belong to FDIC; other commercial banks and savings banks may also join if they wish. www.fdic.gov

GGuardianship -- The trust relationship, established by a court appointment, in which a trustee holds in safekeeping and manages certain property for the benefit of a minor or incompetent person.IImage statement -- A bank statement that contains IRS accepted images of the paid checks.

Individual retirement account (401(k)) -- A type of qualified retirement plan, under which an employee can make tax-exempt contributions to a fund and have those contributions matched in part by the employer's contributions.

Individual retirement account (Educational) -- Established in 1998, the Education IRA is a savings plan for those wanting to save for a child's post-secondary education. Contributions are limited to $2000 per year for any child up to the age of 18. Contributions are not deductible for income, but all earnings can be withdrawn tax-free if used for post--secondary education expenses for the child. All money in the account must be distributed by the time the child attains age 30. All distributions after that age are taxable and subject to a 10% tax penalty. Funds can be rolled over or transferred to an Education IRA for the benefit of another family member.

Individual retirement account (Roth) -- Established in 1998, the Roth IRA is a personal retirement account established by the owner. Contributions are not deductible from income, but all earnings grow tax --free forever if you meet the following requirements: 1) All principal and earnings may be withdrawn tax-free and penalty--free upon completion of the 5-year holding period and: Owner is 59½ years old, or Qualified first-time home purchase ($10,000 lifetime limit) or Death or disability. 2) No required distributions at age 70½. All non--used funds pass upon death to your beneficiary, tax--free. Husband and wife can each contribute up to $ 4,000 per year as long as the husband or wife has earned income. (Must have Adjusted Gross Income below $ 95,000 for single filers and $ 150,000 for joint filers).

Individual retirement accounts (IRA) -- Tax-deferred accounts into which a customer, subject to the restrictions in the Tax Reform Act of 1986, can make deposits and earn interest for retirement purposes. Withdrawals from IRAs are not permitted without penalty, until the depositor reaches age 59½.

JJoint account -- A bank relationship in the names of two or more parties. Joint accounts may carry rights of survivorship.

KKeogh account -- A retirement account for self-employed individuals and their employees, to which yearly tax-deductible contributions can be made if the plan meets Internal Revenue Service requirements.

LLegal lending limit -- The maximum amount of money a bank can lend on an unsecured basis to a single borrower or a combination of financially related borrowers. The legal lending limit is established by law and is expressed as a percentage of the bank's capital and surplus.

Letter of credit (L/C) -- An instrument issued by a bank, substituting the credit of that bank for the credit of a buyer of goods. It authorizes the seller to draw drafts on the bank and guarantees payment to those drafts if all the stated conditions and terms have been met. Also called a commercial letter of credit.

Lien -- A legal claim or attachment filed on record against property as security for the payment of an obligation.

Line of credit -- An expression of the maximum amount of credit a bank is willing to lend to a borrower. Confirmed lines of credit are made known to the customer; guidance lines of credit are for the bank's internal use only.

Living trust -- A trust fund that becomes effective during the lifetime of the trustor (settlor).

Loan -- A business contract in which a borrower agrees to pay interest for the use of the lender's funds.

MMoney market deposit account -- An account authorized in 1982 that is federally insured, provides easy access to the deposited funds, and pays an interest rate that is competitive with money market mutual funds.

Money market mutual funds -- A mutual fund that pools investors' contributions and invests them in various money market funds.

Mortgage loan -- Real estate credit, usually extended on a long-term basis, with the mortgaged property as security.

NNegotiable order of withdrawal (NOW) account -- A type of account that permits the depositor to earn interest while at the same time having check writing privileges.

Note -- A written promise to pay a specific amount either on demand or at a future date.

OOverdraft -- A negative (minus) balance in an account, resulting from the paying (posting) of checks for an amount greater than the depositor's balance.

Overdraft Privilege -- A discretionary service offered to personal checking account holders in good standing whereby the bank pays overdraft/NSF items and charges the client the current NSF fee for each item up to a predetermined limit for items and fees. This service is not a loan or line of credit.

PPersonal identification number (PIN) -- A series of numbers or letters used by a cardholder or randomly assigned by the card issuer to provide personal security in accessing a financial service terminal and prevent use of a bank card by unauthorized parties.

Platform -- A term commonly used to describe the portion of a bank's lobby area where officers, account representatives, and customer service personnel are located.

Power of attorney -- The legal document by which one party is authorized to act on another's behalf.

Prime rate -- A benchmark or guideline interest rate that a bank establishes from time to time and uses in calculating an appropriate rate for a particular loan contract. The prime rate is usually offered to the bank's most creditworthy customers, reflecting their deposit balances and financial strength.

Principal -- (1) The sum of money stated in an account, a contract, or a financial instrument; for example, the amount of a loan or debt exclusive of interest. (2) The primary borrower on a loan or other obligation. (3) A person who appoints another party to act for him or her as agent. (4) The property of an estate. (5) The individual with primary ownership or management control of a business.

Probate -- The judicial determination concerning the validity of a will and all questions pertaining to it. The first step in the settling of an estate. Also the name of the special court that handles probate matters.

Promissory note -- A written promise committing the maker to pay a certain sum of money to the payee, with or without interest, on demand or on a fixed or determinable future date.

Proof department -- The department in a bank that arrives at a control figure for all transactions.

RRefinancing -- (1) To retire existing loans or notes by changing their terms or by making new borrowing arrangements. (2) To retire existing securities by selling new issues.

Repurchase agreement (Repos) -- Contracts between a seller and a buyer, in which a sale of securities takes place with a simultaneous agreement to buy back the same securities at a specified price on a stated date. Repos represent the most common form of overnight investment for corporate funds and usually involve federal government obligations.

Revolving credit -- A line of credit that permits the borrower to withdraw funds or charge purchases up to a specified dollar limit. The outstanding balance may fluctuate at various times from zero up to the maximum amount. Also referred to as open-end credit.

SSavings account -- An interest-bearing relationship used by a customer to accumulate funds. Savings accounts have no fixed maturity date.

Savings bond -- A non-negotiable security issued by the U.S. Treasury Department.

Secured loan -- A borrower's obligation that includes the pledging of some form of collateral to protect the lender in case of default.

Service charge -- A fee levied by a bank for services rendered.

Statement -- The record prepared by a bank for a customer, listing all debits and credits for the period and the closing balance in the account.

Stop payment -- A depositor's instructions to a drawee, directing the drawee not to pay a specific item.Super NOW account -- A relationship that is interest bearing and subject to check withdrawal. It is similar to a money market deposit account but it (1) is not available to corporations, (2) subjects the funds to reserve requirements, and (3) has no limit on monthly transaction volume.

Sweep account -- A relationship in which funds in an account are automatically transferred to or from another account.

TTestamentary trust -- A trust fund created under the terms of a will.

Totten trust -- A trust created when a person deposits money in his or her own name as a trustee for another.

Traveler's check -- A negotiable instrument sold by a bank or other issuer in various denominations for the convenience of individuals who do not wish to carry cash. These checks are readily convertible into cash upon proper identification, usually by a signature in the presence of the cashing party.

Treasury bill -- A marketable U.S. Treasury obligation with a life of one year or less, sold to the public at weekly auctions on a discounted basis and in minimum denominations of $10,000. Also called T-bills

Treasury bond -- Obligations of the U.S. Treasury with maturity of more than 5 years but less than 30 years.

Treasury note -- Obligation of the U.S. Treasury with maturities greater than 1 year but less than 5 years.

Truncation -- A generic term for the various banking systems designed to reduce the need to send or physically handle checks for customers' accounts.

Trust -- An agreement or contract established by agreement or declaration, in a will, or by order of a court, under which one party (the trustee) holds legal title to property belonging to another, with a specific benefit in mind.

UUnsecured loan -- Bank credit extended without collateral.

VVariable - rate loan -- A loan that allows the lender to make periodic adjustments in the interest rate according to fluctuating market conditions. Also referred to as an adjustable--rate loan.

WWire transfer -- A transaction by which funds are electronically moved from one bank to another or from account to account, upon a customer's instructions, through bookkeeping entries.

* This Financial Glossary is intended for generic informational and educational use. Products and or services listed in this glossary may or may not be available from Partners Bank of California.